Note: Since this blog post was first published, the Tax Policy Center has updated its revenue scoring of the tax provisions in the Ryan budget. Numbers and figures have been revised to reflect the more recent score.
House Budget Committee Chairman Paul Ryan’s (R-Wis.) budget, which passed the House of Representatives on a party-line vote last week, continues to receive deserved criticism for its thoroughly dishonest treatment of the sweeping tax cuts it proposes. In a scathing critique, Paul Krugman honed in on its “fraudulent” nature: “The Ryan budget purports to reduce the deficit — but the alleged deficit reduction depends on the completely unsupported assertion that trillions of dollars in revenue can be found by closing tax loopholes.” William Gale of the Brookings Institution similarly concluded that “Ryan is gaming the system in creating budget estimates. … This is smoke and mirrors.
The contours of the Ryan budget’s tax cuts, as scored by the nonpartisan Tax Policy Center (TPC), are as follows:
- Cut and consolidate individual income tax rates to 25 percent and 10 percent brackets: $2.5 trillion
- Repeal the alternative minimum tax (AMT): $670 billion
- Repeal the surcharges included in the Affordable Care Act: $351 billion
- Cut the corporate rate to 25 percent and end taxation of multinationals’ foreign income: $1.1 trillion
- Allow Recovery Act expansion of refundable tax credits to expire: $210
= $4.5 trillion in revenue loss
Ryan’s budget blueprint describes these offsets this way: “Broaden the tax base to maintain revenue growth at a level consistent with current tax policy and at a share of the economy consistent with historical norms of 18 to 19 percent in the following decades.” And the budget totals in the Ryan budget reflect revenue averaging 18.3 percent of GDP over FY2013-22; similarly, the Congressional Budget Office’s long-term analysis of Ryan’s budget is predicated on the false assumption—provided by Ryan’s staff—that revenue will somehow total 19 percent of GDP over the long run (FY2025 and beyond).
This is simply dishonest. TPC’s analysis of the Ryan budget shows revenue averaging only 15.5 percent of GDP over FY2013-22, short of unspecified offsets.1 Yet Ryan wanted nearly $5 trillion in tax cuts and wanted revenue levels above 18 percent of GDP. Honest budgeting would force Ryan to choose between these two preferences (trade-offs being the whole point of budgeting). So Ryan chose dishonest budgeting, instead of changing the policy, he just changed the numbers.
We do know one thing about Ryan’s magic asterisk: it wouldn’t come anywhere close to raising revenue equivalent to roughly 3 percentage points of GDP over the decade (or roughly $6 trillion). For starters, he’s ruled out eliminating the preferential tax treatment of capital gains—the tax loophole most skewed toward the very top of the income distribution and estimated to cost $533 billion over the next decade, according to Citizens for Tax Justice. Furthermore, a new analysis by Jane Gravelle and Thomas Hungerford of the Congressional Research Service concluded that, “given the barriers to eliminating or reducing most tax expenditures, it may prove difficult to gain more than $100 billion to $150 billion in additional tax revenues through base broadening.” Adjusting for this range of feasible base broadening, the Ryan tax cuts would still require somewhere between $2.6 trillion and $3.2 trillion of deficit-financed tax cuts.2 Look at what happens to Ryan’s fiscal trajectory based on three alternative scenarios adjusting for: 1) no base broadening; 2) the low-end of feasible base broadening; and 3) the high-end of feasible base broadening.3
By 2022, public debt under the Ryan budget would be between $3.0 trillion (+19.6 percent) and $5.3 trillion (+34.2 percent) higher without the magic asterisk—a significant margin of dishonesty. This is not meant to breed fiscal alarmism or validate Ryan’s purported debt target; big budget deficits are inevitable in the aftermath of the Great Recession and premature fiscal retrenchment would jeopardize economic recovery. This is merely to prove that Ryan’s entire claim to fiscal responsibility rests on his tax gimmick.
With these tax cuts blowing the lid off of Ryan’s deficit reduction, his proposed evisceration of Medicaid, the social safety net, and public investments is exposed for what it really is: An attempt to gut the federal government and refund the tax bill to the highest-income households, not reduce the deficit. Some $5.3 trillion in non-defense spending cuts—nearly two-thirds of which come from programs for lower-income households—would roughly finance the $5.4 trillion cost of maintaining the Bush-era tax cuts, reduced estate and gift taxes, and the AMT patch. Ryan’s additional $4.5 trillion in tax cuts—two-thirds of which would go to households earning over $200,000—would be financed with a combination of increasing deficits and reducing tax expenditures other than preferential rates on unearned income, thereby shifting the distribution of the tax burden toward the middle class. Nothing screams fiscal charlatan like trillions of dollars worth of tax cuts skewed toward the affluent but financed by gimmicks and abdication of longstanding commitments to seniors, children, and the disabled.
1. TPC’s analysis is based on CBO’s Jan. 2012 baseline, whereas the Ryan budget is modeled from the March 2012 baseline. Adjusting TPC’s estimate of the Ryan plan for legislative and technical changes since the January baseline, the Ryan plan would see revenue average 15.6 percent of GDP over FY2013-22.
2. The $100 billion low-end and $150 billion high-end for base broadening are both set in FY2013 and held constant as a share of GDP thereafter.
3. The baseline for revenue comes from table S-1 of the Path for Prosperity (rather than TPC’s lower revenue baseline) and has been adjusted for lines 2-6 of TPC’s revenue estimate of the Ryan budget (T12-0123). Baseline outlays and debt held by the public are also taken from S-1, and debt service has been revised accordingly.